Interest rates, credit constraints and rent declines belie recent stability in Dubai’s estate market, a latest report by Phidar Advisory, said on Monday. The report shows nominal to moderate declines in quarterly price and rents, and a softening of projects.

The report comes at a time when Dubai’s property market shows growing signs of softening, although the latest Dubai Land Department report showed a 45 per cent jump in land and property transaction value – reaching Dh77 billion in the first three months of 2017.

“The market is undergoing a false start now,” said Jesse Downs, Managing Director of Phidar Advisory. “Apartment sale prices declined only nominally this quarter and volumes increased, which could be mistaken for an impending recovery, but the market fundamentals still do not support this in the short-term,” she added.

In the first quarter of 2017, quarterly apartment lease rates declined 2.5 per cent, while sale prices declined 0.5 per cent, pushing gross yields down to 7.55 per cent, a three-month loss of 15 basis points, according to a three-month moving average of the Phidar House Price Index: Dubai 9/5. Lease rates for Single Family Homes (SFH), also referred to as villas, decreased 2.9 per cent and sale prices declined 5.4 per cent, which pushed yields up to 4.75 per cent, a quarterly gain of 10 basis points, using a three-month moving average

“After eroding through the end of last year, villa yields have started to expand and now apartments need to go through a similar correction,” Downs said. “Rents continue to decline due to weak demand and changes in housing budgets, which will have the starkest impact on high income housing.” she added.

In Q1-17, Phidar’s Dubai Real Estate Investment Demand Index REIDI decreased by 20.4 per cent compared to 2016, driven by exchange rate fluctuations and downward revisions in GDP forecasts. In the first quarter, the US dollar – and therefore UAE Dirham – strengthened against 9 of the 14 floating currencies included in the Real Estate Investment Development Information Network (Reidin) compared to Q4-16.